En Banc: Does a Confidential Manufacturing Supply Contract Trigger the On Sale Bar?

by Dennis Crouch

More to come on this case, but I wanted to provide readers with the filed briefs below.

The Medicines Co. v. Hospira (Fed. Cir. 2016) (en banc)

Briefing is now complete in the en banc challenge to the ‘no-supplier-exception’ to the on-sale bar.  The en banc question here focuses on when a manufacturing supply contract crosses-the-threshold into impermissible “on sale” activity and raises the on-sale bar of 35 U.S.C. § 102(b) (pre-AIA). Although the patents at issue in this case involve pre-AIA law, the same “on sale” language is found in the revised statute. If the post-AIA statute is interpreted so that sales still include ‘secret sales’ then the decision here will continue to be of substantial importance. (Note that the U.S. Government argues that pre-AIA precedent is wrong and that secret sales should not trigger the on sale bar even pre-AIA).

The following questions are presented for the en banc panel:

1. Do the circumstances presented here constitute a commercial sale under the on-sale bar of 35 U.S.C. § 102(b)?

(a) Was there a sale for the purposes of § 102(b) despite the absence of a transfer of title?

(b) Was the sale commercial in nature for the purposes of § 102(b) or an experimental use?

2. Should this court overrule or revise the principle in Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001), that there is no “supplier exception” to the on-sale bar of 35 U.S.C. § 102(b)?

The parties here include MedCo (the Patentee) who (prior to filing the patent application) hired Ben Venue Mfg. to actually produce ‘validation batches’ of its bivalirudin drug. Hospira is challenging the patent and is seeking approval to market a generic version.

The original panel found that the sale constituted an invalidating on-sale bar. Of interest here, the “sale” was Ben Venue’s “sale of services” to manufacture the patented product-by-process rather than sales of the product themselves.  The original panel found no principled distinction between these concepts – thus applying the on sale bar.  Because the ‘sales’ at issue were associated with MedCo’s ‘validation batches,’ the patentee has also now argued experimental use.

Party Briefs:

Friend of the Court Briefs: 

  • US Amicus Brief (secret sales and secret offers should not be seen to trigger the on sale bar).
  • AIPLA Amicus Brief (transfer of title is not required for an on sale bar trigger)
  • BIO Amicus Brief (the original panel’s interpretation is bad policy)
  • Gilead Amicus Brief (only “arm’s length sales between two entities” qualify for the on sale bar; here that does not apply when an inventor controls (through contract) the activities of the manufacturer).
  • HIPLA Amicus Brief (experimental use continues to be an exception to the patent negating effect of on sale activity)
  • IPO Amicus Brief (Contract manufacturing is not a ‘sale’)
  • Miller Patti Pershern Amicus Brief (for AIA patents, this ‘flaw’ in the system has been corrected because only prefiling public sales activity triggers the patent prohibition)
  • Prof Morris Amicus Brief (focus should be on whether the inventor made a sale, here the inventor was the buyer and there is no “on buy” bar; on sale activity should not be termed ‘prior art.’)
  • PRMA Amicus Brief (Parties should be permitted to outsource manufacturing prior to filing for patent protection).

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

27 thoughts on “En Banc: Does a Confidential Manufacturing Supply Contract Trigger the On Sale Bar?

  1. It’s worth noting that the experimental use exception (also at issue here) typically places a burden on the patentee to establish that the use was in-fact experimental. Often courts will look to log books and other forms of data capture as evidence of experimentation. I argue that the same logic should apply to any disclosure of the invention (or sale). A written confidentiality agreement will be sufficient to carry the burden for the patentee that the disclosure (or sale) was in-fact confidential and non-public. Absent a written agreement, the patentee should provide other forms of evidence to meet this burden. And, absent such evidence, the disclosure outside of the organization should be treated as a public disclosure.

  2. It would be pretty strange (and horrible for innovation outside extremely large pharma companies) to attribute on-sale bars to outsourced manufacturing of samples for validation testing. That would mean the only way to not fall foul of the on-sale bar would be to manufacture all pre-retail samples completely in-house… and there are quite a few newer drugs that require fairly extensive processing by expensive equipment that would not be available outside deep pocketed research universities and large pharma. So, such a ruling would be arbitrarily limiting innovation and putting viable research opportunities outside the reach of everyone but the outrageously solvent. Maybe you could save a last step that could be performed in-house only, but even then, you wouldn’t be able to validate the full manufacturing process that would likely be used to fulfill prescriptions/sales to the public. I’m not sure it makes sense to force filing the patent application before that validation process can happen, except for the research institutions with effectively infinitely deep pockets. It certainly doesn’t make sense from a public safety view – you’d want to incentivize researchers to patent the validated drug/process and not some intermediary step that might be less safe, but would be covered by the too-early-filed patent application. We already have a clear incentive for people to patent as quickly as they can – the first (inventor) to file.

    There’s no good policy argument here to characterize outsourced manufacturing for validation purposes as sales triggering the on-sale bar. Rather, finding an on-sale bar here on the facts presented would appear to act largely against the public interest. I think I would find the outsourced manufacturer an arm of the inventor (fact based investigation) and that the processing would in effect be “in the lab.” There would be ways to poison that kind of result, like the process or product being publicized or offered for sale to 3rd parties from the manufacturer directly, but that kind of analysis seems fair to everyone involved. Of course, I only know the facts presented in the blog post…

    1. I second your motion.

      The Federal Circuit has indeed gone once again off the deep end with no good reason for doing so. They consistently get lost because they ignore the Supreme Court cases, thinking the ’52 Act gave them carte blanche.

      Look to all the chaos they caused with BMC Resources, one the worst decisions in that court’s history.

      1. Your windmill chase is most odd Ned (and you neglect just how much the Supreme Court IGNORES the selfsame ’52 Act).

      2. I third that motion, particularly because it’s almost impossible these days for one corporation/company to make/manufacture everything that’s required for a product totally in-house.

        (As for the Fed. Circuit going off the deep end, I have no comments for that.)

        1. That’s why patentees should use a reasonable approach to recording their expectation of confidentiality by written agreement. Note that it should not be up to the U.S. courts to protect patentees from foreign patent laws that are overly strict in terms of public disclosure = no patent. The U.S. offers a 1 year grace period for public disclosure, which is a reasonable balance. Patentees that want more than 1 year to file and/or obtain foreign rights should use confidentiality agreements. This isn’t rocket science.

  3. What comes to mind is the English case about the offer of a product to a shop chain (something like Staples, as I recall) on a date before the filing of the patent application on the product.

    The issue arose, was the offer confidential or did it make the claimed subject matter “available” to one member of the public, that is, the Staples buyer. That is, was it prejudicial to the novelty of the claim, or not?

    The judge reflected on whether the confidentiality had to be assessed subjectively or objectively. That is to say, should the court ask itself whether the buyer understood it as confidential, or should it ask itself whether an interested bystander fly on the wall of the room would have perceived it to be confidential.

    What is the standard under US law, subjective or objective?

    1. Max, I don’t think there has to be a written contract so long as the parties understand the requirement of confidentiality under the circumstances.

      It would be odd to provide a rule otherwise to trap the unwary. That would be harsh.

      1. But… The patentee should be required to provide some shred of evidence that the sale (or disclosure) was understood to be confidential. Otherwise, the public sale could always be avoided.

        1. You guys remind me of the famous case of Dr Palmaz who invented the trans-luminal stent. He wanted to interest the medical device companies. He showed his stent to a number of them, including J&J. Nobody was interested.

          Nevertheless, he filed. Later, J&J acquired the rights. Later, the validity of the issued European patent was put in issue. All those earlier approaches to the various device companies came back to haunt J&J (at least for its European patent). You see, and as we all know, in such circumstances the device companies generally (for good reasons) decline to sign an NDA. Dr Palmaz could not evidence the confidentiality of the disclosures. But could it be implied? The EPO thought so, the UK court not. As one might easily predict, the UK court did not baulk at revoking a patent on the strength of witness evidence, but the EPO had no stomach for it.

          When the enabling disclosure (by which the invention is without a doubt “made available”) is received in confidence, the recipient is deemed not to be a member of “the public”. That’s because he is NOT free to run off and tell anybody else. To prejudice patentable novelty under the EPC, you need to find at least one member of “the public” to whom the invention has been “made available”.

          How does it work in the USA, I wonder.

  4. The fact that the panel decision in Special Devices, Inc. v. OEA, Inc. was in 2001, 15 years ago, with judges Michel (author), Friedman, and Lourie, may make it somewhat easier for en banc reversal?

  5. That was one awesome government brief. And why was it awesome? If relied on Supreme Court case law and was faithful to it.

    Federal Circuit, get the message?

    Also, patent attorneys writing on what the law is or should be, should at least acknowledge the Supreme Court case law on point. If this case goes up, that case law is all that counts. Hand’s interpretation of Pennock is not controlling, but interesting.

    Summary of the government brief: The Supreme Court was always concerned about an inventor allowing the invention to go into public use, selling the invention to the public. This all stems from Pennock v. Dialogue. As the government brief states, Congress enacted “on sale” in 1836 to codify Pennock. Any discussion of “on sale” that is not faithful to this case has got to be wrong.

    The AIPLA brief? The IPO Brief. All of them do not even mention Pennock. Pharma does, but does not acknowledge that “on sale” is a codification of this case. In fact, the brief seems to think that “on sale” was in the statute at the time Pennock was decided. This is flatly amazing.

    The parties’ briefs suffer the same problem.

    I have to give kudo’s to the government lawyers involved here. Mark Freeman, Benjamin Mizer and Megan Barbero. Hats off!

    Freeman has been on the briefs in most of the recent Supreme Court cases. His views are utterly reliable. He was even on the brief in MCM v. HP, and he certainly will be on the brief when that case is heard by the Supreme Court.

    1. “As the government brief states, Congress enacted “on sale” in 1836 to codify Pennock. Any discussion of “on sale” that is not faithful to this case has got to be wrong.”

      So, basically, a case that’s 180 years old controls what happens today?

      Personally, I think this is a major problem with the US court system vis-a-vis patents and technology. We have court cases hundreds of years old that seem to control what we do now, when we have technology that is vastly different from even decades ago (think about this: self-driving cars a decade ago? Computers in your hand that have the functionality we have now?). Personally, I can’t believe the pace of technology today. Technology is outpacing law, and has been for well over 50 years. Benson is a case in point — the Court was completely clueless. And the Court continues to be.

      1. PB: basically, a case that’s 180 years old controls what happens today

        I gets worse than that. Some of the patent issues are resolved (or have been proposed to be resolved) based on English law that predates the existence of the United States.

        That sort of weirdness definitely isn’t unique to patent law, but — as you recognize — the fact that patent law deals with evolving technology (something that’s been relatively rapid changing for most of our country’s history) makes the weirdness even weirder.

        It’s the constantly changing technology, in my opinion, that puts so much pressure on the courts that we’ve set up to resolve disputes about patent law. Our Congress — particularly lately — is simply too dysfunctional to rely on to “keep up” with the needs of the patent system. For better or worse, both the courts and Congress are aware of that, I believe.

        1. MM, but there is a difference in understanding what the drafters intended a term to mean at the time of enactment, and applying a statute so construed to different circumstances like new technology. Scalia was careful to note the difference.

      2. PatentBob, the issue here has nothing to do with technology. It has to with the purpose behind the limited times requirement of the constitution: to put the invention into the public’s hands sooner rather than later.

        The Court held that the date the inventor puts the invention into public use is the date that begins the requirement that the monopoly must end at some definite and limited time in the future. The courts have recognized that if the patent is on a secret process, that this date is measured from the date a product of the secret process is first sold.

  6. DC: If the post-AIA statute is interpreted so that sales still include ‘secret sales’ then the decision here will continue to be of substantial importance.

    Remind me: was the sale in this case subject to a confidentiality agreement between the parties? Or was it simply not publicized (i.e., announced to others beyond the contracting parties)?

    1. This is a very good question. In the case of non-publicized sales without a confidentiality agreement, I think this should follow the same logic as public disclosure case law. I believe that the issue would turn on whether there is an expectation of confidentiality between parties. The default in my view should be that there is NOT an expectation of confidentiality, with the patentee having the burden to establish evidence of that expectation.

      1. Ned: it makes no difference as it was not to the public.

        I think there’s a pretty good argument that, in the absence of a confidentiality agreement, the buyer is just an ordinary member of “the public”.

        It would be strange, to say the least, to require non-confidential sales to some arbitrary number of (three? five? ten?) different entities before the “public” prong is satisfied. By way of contrast, a single catalogued publication sitting on a shelf is prior art even if it’s stipulated that no human ever looked at it.

        1. I agree with MM. Absent an actual agreement, the burden should be on the patentee that the transaction was understood by all parties to be confidential.

        2. MM, the buyer here was the inventor or his privy. That is the difference.

          What you say makes sense if the sale is a non confidential sale to a third party that nevertheless is private.

          1. the buyer here was the inventor or his privy.

            I don’t see why “I didn’t make the invention, I bought it from someone else!” should help the patentee.

            With respect to this particular case, the facts are even worse (as I recall). For instance, it’s not clear that the patentee even knew what exactly the manufacturer would be providing to it.

        3. MM: I think there’s a pretty good argument that, in the absence of a confidentiality agreement, the buyer is just an ordinary member of “the public”

          Even when the buyer is the patentee?

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